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Q&A: Personally guaranteeing a loan
We recently tried to get bank financing for a new practice startup and were required to sign personal guarantees and pay substantial fees. Is this common?
Q: We recently tried to get bank financing for a new practice startup and were required to sign personal guarantees and pay substantial fees. Is this common?
A: Since most medical practices are thinly capitalized and there are not significant hard assets to collateralize, it is common for banks to require that each physician personally guarantee her practice's repayment of debt. This permits the bank to pursue the assets of the individual physicians if the group fails to repay the obligation. Unlike home mortgages or car loans, these loans often come with significant costs, such as paying the bank's legal fees, to prepare the loan documents and loan-origination fees.
